April 6, 2012

Amazon UK under investigation for not paying taxes … for years

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A routine regulatory filing with the U.S. Securities and Exchange Commission has led to a revelation that, while it would have been no surprise here, took over the British press yesterday: Amazon is being investigated by UK tax authorities for not paying taxes.

As a Guardian report by Ian Griffiths explains, the company “generated sales of more than £3.3bn in the country last year but paid no corporation tax on any of the profits from that income” — hence the investigation by the office of Her Majesty’s Revenue & Customs (HMRC).

An Independent report by Martin Hickman details it even further, saying that Amazon hasn’t paid taxes for the last three years, when its UK sales “were between £7.6bn and £10.3bn,” and that, “for a longer period, 2003 to 2011, its UK registered company paid £3m tax.”

As bot the Independent report explains, Amazon UK based its non-payments on two loopholes it believed allowed it to do so: it denied it was a retailer, and denied it was even a UK company, despite its name.

Like many multi-national companies, Amazon arranges its affairs across the countries in which it operates in order to minimise its overall tax bill. In the UK, it officially designates its seven warehouses in England, Scotland and Wales as “order fulfilment” — essentially delivery businesses – while sales are registered to a separate company, Amazon EU Sarl in the low-tax principality of Luxembourg …

… Accounts filed by Amazon EU Sarl show that in 2010, the Luxemborg office had sales of £6.5bn and employed 134 people, while its UK operation employed 16 times more people, 2,265, but had sales more than 40 times lower, £147m.

The Guardian report gives some idea of the tax revenue lost to the UK as a result by noting that in 2010, for example, Amazon UK’s sales …

… were between £2.3bn and £3.2bn. Amazon in the US has earned an average 3.5% profit margin over the past three years.

UK sales over the past three years, according to the SEC filings, were between £7.6bn and £10.3bn. If the same profit margin was applied, this would have generated taxable profits of £266m-£360m and yielded notional UK corporation tax of up to £100m.

The news, first broken by a (subscribers only) report in The Bookseller, got extremely heavy coverage across the British media, including widespread broadcast coverage, such as this BBC report, and this Sky News report. And newspapers across the board picked it up, from the Independent and Guardian reports above to this report in The Telegraph, and this one in The Daily Mirror. A report in The Scotsman says the First Minister of Scotland, Alex Salmond, was accused of having joined Amazon in giving Scottish businesses a “kick in the teeth” after the news broke, because he had just closed a deal with the company for it to open a new warehouse in Scotland.

And many papers ran multiple stories on the news. The Guardian, for example, ran four stories about it, including this feature quoting the founder of the Ottakar’s bookstore chain, James Heneage, who said upon hearing the news about Amazon’s tax avoidance that the company was “dangerous.”

“With great market power comes great market responsibility and I don’t get the feeling that the leaders of businesses like Amazon really understand that aspect,” he says. “If you want a long-term successful market in which to operate you need to invest in it ….”

 

Dennis Johnson is the founder of MobyLives, and the co-founder and co-publisher of Melville House. Follow him on Twitter at @mobylives

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